Real Estate agent First National says the BNZ is currently the most "farmer friendly" bank.
First National polled its offices asking which banks were friendliest to farmers and currently doing most of the lending in their areas.
"BNZ topped the poll, followed closely by the National Bank, with Westpac in third place."
Meanwhile, First National says its latest quarterly rural property survey shows sales this spring were similar to last spring but farm listings were up 20%. The market did, however, fluctuate "wildly" from region to region with areas like Northland recording fewer sales than last spring, and others such as the Bay of Plenty recording more.
First National's general manager John Stewart says banks are "proactive" in lending again. And although many buyers continue to hang back hoping prices will drop further, there were enough "serious buyers willing to meet serious vendors."
“Now that the heat has gone out of the market and prices are more closely aligned to returns, serious buyers and sellers are back to doing business," says Stewart.
Therefore: “The current lift in listings is more a reflection of owners wishing to move on to other and often larger properties than perhaps might have been the case over the past couple of years where duress was regularly the prime driver."
"Those surveyed commented that the lift in buyer enquiry in recent times reflects the stabilising of costs and incomes, again allowing people to plan ahead," says Stewart.
Banks move to 'more encouraging' position from 'almost complete lack of support'
First National says increased enquiry was "certainly" being driven by recent bank moves to "quietly move from their almost complete lack of support" for individual rural purchasers to a "more encouraging" position.
"This is resulting in New Zealand farmers being able to consider purchasing their next property, arresting for the moment at least, the 2009 to early 2010 trend that saw many properties sold to rural partnerships and off shore buyers," says Stewart.
First National's comments come a day after the Real Estate Institute of New Zealand's November Rural Market Report showed 71 farms changed hands during November, up from just 46 in October and 69 in November 2009.
Institute spokesman Bryan Thomson said although spring had brought some new growth to the rural property market and there was plenty of investigation going on, both sellers and buyers were still coming to terms with the "changes in price levels" and taking time to make decisions.
In its bi-annual Financial Stability Report released last month, the Reserve Bank said farm prices might need to continue falling to see “substantial” buying interest re-emerge and also warned that further falls could see dairy farmers, who took on debt to expand during the boom times, slip into negative equity.
The central bank said farm prices had fallen by about 15% from their mid-2008 peak by the end of 2009. Prices appeared to have fallen even further throughout this year, but given the extremely low volume of farm sales, the current level of farm prices was “highly uncertain.”
The Real Estate Institute of New Zealand said yesterday November farm sales included nine dairy farms, up from four in October and just one in September. However, the November figure is still down on the 10 dairy farms sold in November last year, 15 in November 2008 and 55 on November 2007.
'Significant number of farmers likely to go to the wall'
Meanwhile, First National says its agents are reporting a significant number of farmers, whose banks helped them through last spring, are likely to go to the wall in coming months as anticipated production fails to materialise leaving them struggling to cover additional debt incurred.
"In Central Otago, the ongoing strength of the New Zealand dollar and weakness of traditional offshore property investment has hit the rural market hard. Many listings have been taken off the market but are still for sale if buyers present themselves to agents. Unsold blocks of bare land are being developed by owners into the likes of cherry orchards to add value in the meantime. The best regional performers in sales were the Bay of Plenty followed by Taranaki," says Stewart.
Despite the Psa kiwifruit disease scare, grazing blocks, horticulture and lifestyle properties had kept the Bay of Plenty market turning over. Taranaki had twice as many listings as the same time last year and sold a similar number of rural properties.
Stewart says buyers are still scarce so any offer needs to be taken seriously by vendors unless they have the luxury of being able to wait.
182 Comments
"First National polled its offices asking which banks were friendliest to farmers and currently doing most of the lending in their areas."
Thats like asking which Turd smells the best, I've a friend with BNZ they have this stick thing up his butt and they wave it around and he does alsorts of things and then lose change falls out of his pockets. Then they do it again, he's really keen to get that stick out of there, must hurt like hell, made him a very willing seller and he doesn't spend money on anything unless the man with the stick nods his head, if he moves the stick he walks right on by.
Thats incredible Andrew! BNZ inserted my entire farm in that very same place! Due to being "one of our most progressive clients" I not only jerked money out of places for them that few could in nasty 09, but had the farm removed out of my butt by the same force they rammed it up there. However, that didnt turn them on enough, my property then sold at a price with significant equity, allowing the excretion of inflated breakcosts. More later...
got to love real estate agents
No not at all. Not even a little bit!
And right now the business between serious buyers and sellers is this:
Seller: "I want to be paid what you would have paid in 2007 plus 25% to 50% more because it's 2010 now and I am entitled to massive capital gain. Take it or leave it."
Buyer: "You're a bloody dreamer mate, no one is going to pay that, and besides no one has the money to pay even 2001 prices these days. Good luck selling, fool!"
The buyer then walks away shaking his head in disbelief and amusement while the seller spits and rants about 'tight arse buyers who want everything for nothing and this bloody govt's gotta do something about it.'
I was not aware that First national were in the business of selling farms.
Where I live,they are a minnow player who sell no farms.
From what we see,the bank picking up the most business from other banks is Rabo.
BNZ are the bank who in our area,seem to have the managers who are the most frightened and are the only bank who are demanding that certain clients in the dairy sector produce their financials within 6 months of balance date.
BNZ are certainly not picking up market share from other banks in our area.
ANZ taking over National has done them no favours.
ASB has gone from superhot to lukewarm and are putting a bit of heat on some,.
Westpac have got too pedantic but still seem to have a bit of coin available.
Why not ask some real estate agents who actually sell farms[not that many are selling at present] what they think.
Bingo. That is because BNZ marketed hard in 07, branding themselves with discretionary lending ability so few cases needed to go to credit for approval. Yipee bonuses. When NAB (Aussie parent) busted the number of outside policy clients, Ma and Pa smacked their bottoms over here faster than you can say "oops"
ASB bankers had uncapped bonuses and were depositing 6 figure bonus packages. naturally 5 minutes later they are banging farmers into receivership and trying to explain to CBA (Aussie parent) why the budgets and valuations they engineered were ever created. Naughty boys.
The bit about farmers being ousted due to not meeting production is dribble.
What exactly is he raving about.
As for Central Otago,sure the trendies who have got into grape blocks are getting burnt,and those who subdivided land to make a quick buck have missed the boat.
So what..it is only yuppie stuff anyway.
There are not very many cherry orchardists and it is not something you just go into .it is a tricky industry very prone to climatic conditions and requires specific skills.
The dairy payout is up,sheep meat prices are up,so despite climatic issues,this season will not impact on those who do not already have a fundamental structural problem.
Two things.
One is that there are TONS of cherry orchards around Otago. It was the next big thing back in the late 90s and early 2000s so lots of people went into it including established farmers. It all cost a bomb to set up and that will have mostly been debt-powered.
The other thing is that even if NZ agricultural industry doesn't have a structural problem, NZ does have one and much of it is the result of NZ's agricultural industry based economy.
Agriculture earns NZ around $15bn per year. How much was the latest budget deficit? Something like $15bn wasn't it?
This country pours most of it's meagre investment budget into agriculture and the crap return is instantly negated. That's the thing with agriculture, it's low return because among other things it's inefficient even when it's at its most efficient.
The returns don't justify the investment yet it's all we ever invest in. What about those industries that make buttloads of profit such as Google and the rest? That kid made a fortune from selling Trade Me to the Aussies and I don't expect it cost him very much to create that business.
So where are our entrepreneurs? My suspicion is that they take the first plane to Oz because they know there's zero hope of getting a leg up in NZ.
Crikey even suggest that we assist young people with interesting and solid business ideas and we're screamed at for being "soft" and it's all some how a commie plot to bring down capitalism. Usually the people screaming at the thought of helping out new starter businesses are the same people who inherited their own and who benefit from all sorts of fascinating tax breaks and programs and other shenanigans.
Cow Town NZ where the farmers get richer and everyone else is expected to thank them.
There are not tons of cherry orchards around Central Otago.
There are tonnes of cherries produced from orchards around Central Otago.
I am not aware of cherry growing being the next big thing in the late 1990's early 2000's.
My observation would be that it was growing grapes for wine.
In the 1980's,the special partnerships that were set up in Central Otago for stone fruit encompassed cherries,apricots,nectarines,peaches and plums.
Cherries are a high revenue export crop,but not a large component of total stonefruit production by volume.
In regard to business assistance,Post Rogernomics we live in a country where such things are frowned upon.
Agriculture and Tourism,that is about it.
The agriculture sector is competing against a world where there is much protectionism and tariffs.
As for tourism,we are a long way from anyone,thus a blip in the price of oil has a material flow on effect.
As for Trade Me,how much does this earn in cross border currency ?
It is the country's biggest second hand shop,but how many jobs does it provide compared to how many jobs it has eliminated.
Providing jobs and cross border currency is what is required.
In the Post Muldoon world,NZ does not balance its books.
You can import a $500 million Lambo,but where are the export earnings or tourism revenue to justify it ?
As for Aussie,I am all in favour of NZ becoming the seventh state.
I assume you have already immigrated there.
As for dairying,I regret to inform you that its expansion is continuing rapidly,and as it provides better returns than anything else you can do with the land except for carving it up into residential sections,its expansion will continue.
It has provided alot more jobs in rural areas.
The Mans back.
Why the vitriol towards agriculture? Its not them and us stuff. Lets be thankful we do have a highly efficent and productive agricultural sector in this country. At the very least we are produceing products that are currently in high demand offshore and seem set to continue being so in the forseeable future.Im sure we would all love for NZ to have a wider based economy but its not farmers fault that we dont. Perhaps people like yourself should stop whingeing about us and get off your butt and start up the next big thing!
Interestingly farming in Ireland is booming at the moment despite the wider economic troubles. Theyve discovered that when the music stops on all the shiney arse property developments, corperate paper shuffling and financial industry shinanigans that it was all smoke and mirrors. In the mean time their farming sector was produceing real and in demand products that consumers are prepared to pay record prices for.Go figure!
So lets celebrate having a strong, resiliant agriculture and tourism base to our economy but yes lets also strive to create and nurture the Rakons,Xeros and Martin Jetpacks etal as well.
The problem is that many city dwellers think that without them,NZ would not exist.
Wrong.
Incorporate rural NZ into a distinct country and let the likes of the Man stay in his city.
The man is one of those who is still living in the world of the 1950's where you needed offshore earnings to buy a new car,and a sheep farmer could build a new house out of a years cash flow.
Some people have had this jealousy thing going for a long time and can;t get it out of their heads.
NZ has a very efficient agriculture system which is being made more so by the progressive people involved in today's farming world.
The Rogernomics people disguised as the Labour Party were going to show us that we didn't need agriculture,and that we would become all sorts of other things,but it hasn't happened and never will.
The media loves to rave on about the latest new business venture,but the reality is that inevitably the number of jobs created are as significant as a wart on an elephant.
Yes Marlarkey who is the backbone of the country ?
The All Blacks ?
The All Whites ?
The Black Caps ?
The Silver Ferns ?
The Tuatara boys ?
Property Developers ?
Computer software developers ?
CEOs who command multi million dollar salaries because muti national management consultants justify their remuneration packages ?
I feel compelled to make a comment. Is First National pissing in banks pockets so they can pick up some business from the banks when banks withdraw credit facilities?
Ask any rural valuer how hard it is to value farms because there hasn't been enough sales to allow valuers to do an accurate assessment.
All banks are behaving the same, reducing,removing overdraft facilities, Forcing farmers to sell despite all mortgage requirements met and surpluses produced in some cases
For sheep and beef farmers banks are only funding $100 a stockunit as opposed to $700- $1000 a stock unit 2008.
Ask any landagent that sells rural property how many times they have a deal almost done,and banks turn down finance and these are clients with a couple of million in their back pockets.
Banks are strategically placing farms on the market and many more will be forced to sell next year.
What planet is Stewart on duress from banks is still the main driver for farms being on the market. Take your hand out of your pocket.
I was recently talking to a sharemilker who holds shares in the equity syndicate he works for.
He wanted to buy some more shares but the major shareholder would not sell,because if the bank found out that a valuer had reduced the farm valuation,their interest rate would rise 0.5%
Sheep & Beef & cropping farmers buying additional land is virtually non-existent.
Dairy farmers are outbidding them by 50% in the meagre number of deals that are going through.
Milking platforms are hardly moving,because to line up two deals back to back is near impossible.
The payout has gone up,but so have the costs of production on a dairy farm,so compared to a decade ago the surplus before debt servicing is no greater per kg/ms,and the cost of buying a milking platform,or doing a conversion has escalated substantially.
It was the availability of finance by the new breed of agribusiness salespeople that led to the huge escalation in land prices.
They heated it up far too much,so we now have overvalued properties where we cannot get a willing buyer/willing seller scenario.
I have seen very few farms put on the market by bankers,but there are some in the sheep & beef sector who have longstanding structural issues which cannot be addressed...too much debt.
In the dairy sector,there has been some unwise lending by over zealous bankers,which has come home to roost.
Valuers do have a minimal base of sales on which to base their assessments.
Red dog
You seem a man in the know. Tell me, does the senario that Janette Walker has been suggesting here about 10% of "intesive care" farms being managed onto the market by banks by autumn have any veracity?
It would seem to me they would be much better off useing extend and pretend whilst cashflows are strong. Why would they risk furthur devalueing their books?
No it is rubbish.
The increase in the dairy payout has taken the heat off that sector.
I have seen odd situations such as a high profile person being given too much money by a financier who should have instead focused on his financia lmanagement skills,forced to reduce his scale at a loss,and a farm bought and converted without obtaining the necessary irrigation consents which was just bad homework by both the bank and the purchaser,but that is about it.
There are the high profile Crafars &Thurstons but I see no moe than that.
The dairy payout is now over $7 per kg/ms,and an efficient non irrigated dairy farm can operate at a cost structure of 3.30 to 3.70 per kg/ms,so if you have a capable operator,there should be no issue with survival.
In the sheep and beef sector you have a number of farmswhich have continual cash regressions simply due to too much debt.
There is a day of reckoning for these farms,and the banks are putting risk margins on their lending rates.
However,despite some of them running substantial cash regressions over a number of years,I cannot name one farm where the bank is saying 'that is it your farm must go on the market.'
OK, id thought as much. I dont have any particular inside info but my gut feel was why would the banks heavy significant numbers of farms onto the market when at the very least the could ride it out whilst cashflows were good.
I agree that general punters on this site extrapilate the Crafers to be the normal senario out there when clearly they are an extreme outlier. I often ponder how even they would be travelling at a $7 plus payout?
With an operation as large as they had,no matter what facet of farming you are in,with a high debt loading based on asset based lending,cash flow breakeven on creative bank lending budget during good times,your management systems must be consistently first class .
So if they fall down,if you produce below budget,have labour issues,cost overruns,climatic problems,the payout drops,and you slip into cashflow deficit,it becomes a spiral which you can only climb out of by selling some of your assets.
And if the land market slips.........
I know people who used to farm in the same district as the Crafers.
They said that they were good farmers but clearly the ease of bank credit has let them get too big and control has passd from their hands into the banks.
There has been talk of environment issues,but that is commonplace in dairying.
Red Dog the 10 % came from the man himself Charlie Graham. The banks have coined the phrase " intensive care" themselves. For those that seem to think they have a good handle on Crafar his debt per kgms was less than the National average, But this discussion isn't about Crafar. For your info banks are saying to farmers sell your farm and then they reduce or remove overdraft facility to make it more difficult for the farmer to be financially viable. I know because I get rung daily by farmers that have been told to sell, even those that are able to cash flow debt and produce a surplus, the reason, land values have dropped so much there becomes a debt equity ratio problem for the banks. Banks have provisioned already for close to a billion dollars in "bad debt". Banks also have capital adequacy ratio expectations to meet set by the Reserve Bank. The time frame for ratiio adjustments have been delayed because banks are unable to comply without further squeeze on credit availability.
"The increase in the payout has taken the heat of the dairy sector " Crap! The increased cost of production because of last years drought and this years drought is having a huge effect on profitability of the Dairy sector. Why do you think the govt declared the drought zones, so farmers could have acess to some financial relief in the form of the dole and some tax deferal. In my area alone I could name 12 farms for sale because of bank pressure within an hours drive from each other. Banks are strategically placing farms on the market. For sheep and beef farmers they have "cash regressions " because of poor returns and increased costs. You forget that alot of sheep and beef farms are breeding blocks and they can't diversify and they can't transfer to dairy support and these back country farms cost of production is soaring and profitability is falling.
The reason it isn't out there, is banks make clients sign confidentiality agreements not to discuss their financial arrangements and waivers. Ring National Radio and talk to the producer nine to noon about how many farmers rang in following two programmes on bank behaviour and how many wouldn't go public when asked? The whole bloody lot ! Talk to the editor of Straight Furrow about the response they had following articles I did, Quote " the greatest response in the last 12 months to any article.
And for your info red dog every farmer that I know that killed themselves had to sell their farms, I know personally of 13.
Sheep shagger. yes it is hard to believe, for me when I first got the call that my farm was no longer viable in the banks opinion 6 weeks after being told I was pioneering, you're on the right track. we will support you , you have plenty of equity,increase your stocking rate etc.etc, it actually took me 4 months before I realised that the bank wanted me gone. No matter what I did it was over and they withdrew support. What changed the banks attitude so suddenly, Basel II new accreditations regulations from reserve bank Read article Reserve Bank Bulletin Vol 72 No 3 Sept 09. The quality of Bank Capital in New Zealand. You might get a better understanding.
Janette I put your name into the internet and I note that you are a sheep and beef farmer from Northern Waiarapa.
I also put Charlie Graham's name into the internet.I did recall that he was involved with National Bank.
The first article that came up with his name in it was an ODT article from May 2010,which highlighted the fact that I have already stated,which is that Rabo and Westpac have been this year the banks who have been increasing market share in the rural sector.
I have noticed unnerving changes in the agribusiness team in my area.
In fact the number of staff defections to other agribusiness banks have been alarming.
I am also aware of disquiet by National Bank clientele towards staff changes and a lack of experience displayed by new staff.
The takeover of national Bank by ANZ was very much a backward step,as ANZ has no empathy with the rural sector.
They do not figure in Aussie rural lender.
I am aware that National Bank non agribusiness so not feel as safe in their jobs with ANZ.
Next year the black horse goes,and if the ANZ brand takes over....look out.
If we look back a few years,ASB headhunted National Bank staff,who then pirated a large number of National Bank clients.
I have noted Rabo picking up market share from them,particularly in the dairy sector.
Charlie needs to remember that there are other banks out there.
I am assuming that you are dealing with alot of hill country farmers who of course have been dramatically affected by the collapse in the price of crossbred wool from $5 in 1990 to $2.20 last season.
I am assuming that you are domiciled in an area that does not have the alternative of dairy support or cropping as alternatives.
if this is the case,then you will have proportionately more farmers who are on a downward spiral.
In the last twelve years,the average increase in on farm costs has been around 6 % per annum,which is double the official CPI.
And then you look at overheads such as insurance,which increase by around 10% PA.
Shearing Contractors ACC levies increased by 50 % this year.
Look at the fixed line charges for power,or high charges for an internet access.
If we did not have dairying,rural areas would be much more recessed.
In 2009 with the collapse of the payout those growing grain and putting in winter feed for dairy cows were left holding the baby,but with the increase in the payout it is all on again.
I don't claim to have any handle on Crafar.But the bigger they are the harder they fall.
I know how large scale dairy can go belly up.
Some of the corporate farms are the worst operated.
They end to just pile the cows on rather than focusing on maximising return per cow,and tend to have higher than average staff turnover,and poorer management than privately owned farms..
In the 1980's I saw Wrightsons playing those overdraft games with farmers,and in 2009 I had those comments from BNZ and ASB on a one off basis,but in both cases I could understand the reason for it,as it was a case of continual cash regressions.
But this calendar year I have not had a banker make such a comment.
Agribusiness bankers seem at present to be supportive,but more insistent on governance and management reporting,which I support.
Certainly land values have dropped.
Dairy farms are back by 25 %,and I have seen bare land drop by 40 % since 2008,but the 2008 value was on the back of the highest dairy payout in history.
But there is still plenty of equity left,even in highly indebted situations.
North Island hill country with its more limited land uses I cannot comment on.
If regard to drought and dairy farmers,I have seen dairy farms established in areas that can be summer dry,without access to irrigation.
You need either reliable annual rainfall or access to irrigation.
If you are going to put improvements on a piece of land it is a very expensive exercise so it has to be the right location.
We are noticing that buyers are avoiding summer dry locations where a drought year may cause a 25 % drop in production,or if those farmers wish to sell,they must discount their farms accordingly to factor in the risk for the buyers.
I am very aware of the status of store lamb properties.
i have been through exercises with farmers who have been looking at selling a finishing farm with diversification,for a larger scale hill country farm.
The reality is that the hill country farms are inevitably overpriced,and the returns cannot justify the change of properties.
It is no wonder that hill country farmers appear to be strongly supporting a movement to improve the returns for wool.
Red Dog the Pir..., I put your terms "cash regression" and "cross border currency" into Google separately and found that this country's political and economic elites appear not to use the terms. I am certainly confused as to whether you are using "cross border currency" to refer to exports or currency transactions.
I am surprised given your apparent breadth of knowledge you had to search Charlie Graham's name.
Please explain.
Thanks.
Well ever since ASB came on the scene.National have been losing market share and with bankers defecting to other banks such as Rabo,it will continue.
There are too many Generation Y Bankers out there.
Fresh out of tertiary,in at the bank for two years and then away on the OE.
Most of my generation were too busy working to go on the typecast OE.
I am getting dissatisfied comments from National Bank rural clients in terms of service.
All of those I am talking to have the ability to change banks.
No one is irreplaceable.
Mr Muldoon was not.
Nor is Mr Graham.
"Agriculture and Tourism."
You should head down to the south of the South Island to see how agriculture is going to destroy tourism.
Or do you believe that foreign tourists want to spend a lot of money to travel all the way to NZ to see and smell lots of cows and lots of cow poo?
The plus side is that bottled water suppliers are going to make a fortune!
There are not many dairy farms on the West Coast.
There isn't that much land in the narrow strip.
No point faming sheep there so cattle either beef or dairy have always been what there is.
Haven't been on the coast for a couple of years.
I have not noticed dairying impinging on tourism.
I am at present working with someone who is looking at buying a dairy farm there.
His banker has even done a budget for him,and is very supportive.
err Red dog, dairy conversions began on the west coast at large scale over a decade ago. Landcorp included. There is even a dairy company over there now called "Westland" BNZ are currently selling guys up over there. Bankers at some banks have been instructed not to produce budgets to the farmer as the bank is legally liable.
I think dairy farmers should be very careful, I got this comment from a friend who used to be in banking;
Banks buy up the commodities with Federal Reserve largesse and the farmers borrow more from the banks to ramp farm prices. Every one happy?
This is what high prices and a low $ are doing in the States,
USDA’s report on November milk production was released today. Compared to a year ago, there were 30,000 more cows, 38 more lbs of milk per cow, and 400 million more lbs of milk. The increase amounted to 2.65%. Compared to October, there was no change in number of cows, production per cow per day increased by 0.4 lbs, and total milk production per day increased by 3.8 million lbs. That’s an increase of 0.7%. November marks the second month in a row where the monthly increase over the previous year was lower than the month before. The overall result looks better than it has been, but November marks the fifth month out of the past six where the amount of milk produced was 400 million lbs or more greater than the year before. Because class 1 usage continues to be about 1.5% below a year earlier, it’s virtually certain the additional milkproduced, plus the amount not being consumed as beverage milk, will have to be converted into butter, powder, and cheese. Using standard conversion rates, U.S. plants will be producing some combination of 40 million more lbs of cheese or 17 million lbs of butter and 33 million lbs of powders. It could have been worse. California’s milk production increased by 4.5% over last November, with 15,000 fewer cows, and a whopping increase in production per cow of 95 lbs for the month. The totalmilk output was up by 140 million lbs. USDA says California producers added 2,000 cows in October and another 1,000 in November. The six western states closest to California were reported to be milking a total of 62,000 more cows than a year ago. California continues to be the only state in the western block still with fewer cows than at the same time last year. If we in NZ think we are immune to world events we are mad. NZ is now uncompetitive compared to many of the world dairy producers. If we continually have inflation levels above our partners and then compound it for 15 years we are buggered, welcome you have arrived at your destination, council rates up %8.5 on average this year our cost of production are of major concern and if we run an inflation policy of around %6 to try and inflate ourselves out of debt we will be completely buggered. Look what the UK banks are doingIn a statement, Lloyds said it had seen a "further significant deterioration in market conditions" in Ireland and that a further 10pc of its £26.7bn portfolio of Irish loans would be impaired by the end of the year.
"We are concerned that any economic recovery in the Republic of Ireland may take longer to achieve, and that asset prices will remain depressed for longer than previously anticipated," said Lloyds.
Provisions to take account of the worsening in the portfolio will amount to an additional £4.3bn this year and total provisions now cover about 54pc of the entire loan book, effectively meaning Lloyds does not expect to get back at least half of its Irish loans.
The huge write-offs have largely been driven by the collapse of the Irish property market and 90pc of the bank's loans against commercial property in Ireland are impaired, meaning that the borrower is either behind on payments or unable to service the debt.
Our competition in south America scares the hell out of me, I know I have several friends dairying there. I saw in June this year a massive brand new dairy farm out of Cedar city Utah, 3 John Deere self propelled harvesters going full time to supply feed to a massive shed full of cows I couldn't get an answer on how many cows.
This recession we are in, is here to correct an imbalance and by hook or by crook its going to get the job done.
Look at the ethanol debate in the States if they pull the pin on this one its going have a flow on effect.
CONGRESS EXTENDS ETHANOL TAX CREDIT AND TARIFF: (By Rob Vandenheuvel) This week, Congress passed a tax bill that will extend the “ethanol blender’s tax credit” at its current value ($.45 per gallon) for one year. Much has been written in this newsletter over the past month about the proposed extension of this $6 billion-per-year tax credit, and our efforts to end this fiscally irresponsible policy. Unfortunately, the ethanol lobby was successful in finding the right friends in the legislature, and attaching the measure to a bill that many in Washington, DC, saw as must-pass legislation. The tax bill that was approved by Congress and signed by the President this week included a two-year extension of the “Bush-era” tax rates. This legislation has become a top priority for President Obama and many in Congress. That bill, known as the “Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010,” (should we call it the TRUIRJC Act for short?) is estimated to have an $857 billion impact on revenues to the U.S. Treasury over the next ten years (Congress measures a bill’s impact over ten years, even though the majority of the provisions expire in two years). By attaching the roughly $6 billion extension of the ethanol subsidies to a much larger tax bill that has support on both sides of the aisle, the issue of ethanol was largely in the background during debate. In fact, of the 17 Senators that recently signed a letter specifically opposing the extension of the ethanol subsidies, only ONE – Republican Senator Tom Coburn fromOklahoma – voted against the final bill. However, with the ethanol provisions only extended for one year, it sets up 2011 for a more drawn out debate over these subsidies. The coalition opposing the extension of the blender’s tax credit is a widely-diverse group of organizations, representing conservatives, liberals, livestock agricultural and environmental groups. Congress certainly noticed the rational arguments coming from this coalition, even though it was unable to stop the extension of the subsidies at this point in time. The next twelve months will undoubtedly be a time of education for our legislators and the general public on this important issue. This fight is not overAlways an interesting thread when you're commenting AndrewJ, some thought provoking comments from others ie Red Dog Jannette Walker The Man??.
Interesting to note production ramping up in the states, however Fonterras on line auctions are still strong. Does it reflect an increase in demand for dairy globally?
Do you know how well NZs who invest in ag in Latin America are doing. I know some notable dairy folk have invested in Chile, others Brasil. However the little I know is there are significant challenges transferiing NZ business practices due to culture..
If land prices fall further, maybe to there productive values, will NZ be better off?
I assure you that dairy farmers are being very careful.
The $4.50 payout sent shockwaves through the industry,both to farmers and those servicing them.
The 25 % decrease in milking platform values and farm sales coming to a virtual standstill is evidence of that.
So you are preaching to the converted.
Andrew you remind me of an economist who comes to a rural town and tells the locals what they already know.
I would not walk next door to listen to such people.
I know how large scale dairy can go belly up.
Some of the corporate farms are the worst operated.
They end to just pile the cows on rather than focusing on maximising return per cow,and tend to have higher than average staff turnover,and poorer management than privately owned farms..
How come many of our agribusiness leaders are corporate and seem to follow the model outlined above, yet are considered good businessman and should be aspired too?
Red dog you also mentioned that it was unviable to be buy dairy farms in summer dry areas. With the erratic climate, would that mean the entire North Island, and anything unirrigated in the S.I?
You are looking at buying a dairy farm producing 200,000 kgs/ms
You have three farms to choose from
Farm A
Consistently reliable rainfall but hilly terrain.
Farm B
Flat and Irrigated in summer dry country but the local council are making noises about revisiting the water allocations in your district,and this farm has a good deal at present as the council historically operated on a first in best dressed scenario.
Farm C
Summer dry and prone to produce 160,000 kgs/ms in a dry year.No irrigation.
All three farms are on the market at a similar price.
This is happening right at present,and we hark back to the old rules of Location Location Location.
There are a sizeable number of farms on the market which are not suficiently discounted to attract a buyer.
Anyone with the ability to put a syndicate together has a good choice of farms to purchase,but vendors need to be realistic.
There is a market for non irrigated farms in summer dry areas,but the asking prices must be discounted to reflect the climatic risk attached to the property.
Over the last 20 years the market price of farm land has increased as much as 600 % but the economic surpluses are no greater.
Red dog: No I am not just dealing with hill country farmers. The last month it has been mainly Dairy guys and some cropping in both islands.35% of farm business is now managed by central banking according to a survey I did Feb 2010. 47.9% have had od's either removed or reduced. Agri business managers no longer do cash flows or budgets for clients, Banks have done this to reduce their liability.
You have been fed a line, banks are certainly playing od games this year no doubt Banks are good at spin and disinformation. Charlie Graham is National Bank's managing director. At the end of the day bank behaviour is damaging NZ's rural sector and they don't have the capital to invest.
Alot of mid management bankers left because they couldn't stand what was being done to their clients and those bankers had to sign confidentiality agreements. The stress of foreclosing on clients became to much particularly those that had long relationships. All the banks have had a large recruitment drive this year and they will start their cadet training next year fresh opf the block and ready to me moulded..
Wool hasn't figured in the budget for the last 5 years. Shearing is only done as an animal health exercise if you cover costs well and good.
New rural lending this year has been.3% down from 22.1% reserve bank figures. Half the bank staff don't even understand Basel II and now Basel III they just do what they are told and what is said in public is structured and organised so the banks all put up a united front and are singing of the same page, Banks hate damage to their brand.
Are you telling me that 35 % of farm lending is being handled through credit control people rather than their normal agribusiness managers ?
I am seeing 5 % in that category.
I have seen no scenarios this calendar where overdrafts have been removed.
Agribusiness managers whom I am dealing with a still doing budgets for clients.
Just because a farm consultant does a budget does not mean a banker will accept it.
They have their own parameters.
Cross bred wool has risen from $2.20 last year to $3.70 this year.
Red dog, what if you add Farm D, my friend just purchased 650 acres in Chile, its leased to the neighbouring dairy farm, cost $270,000, retuning over %10.
Your A B and C scenarios based on production, Id go the lowest cost every time.
If we were a state of Aussie the strong $ would be killing us. As Im the guy who comes to town and tells you what you already know, Im wasting my time pointing it out. I take it you are a consultant?
Option D was the flat farm in the reliable rainfall area at $5 a kg/ms more than the others.
That is the one being bought.
Of course there were another 12 or 15 looked at.
As for dairying offshore,it is not just a matter of what your income yield is,but how safe your capital is.
Had a nice spot of rain last night.
Where you live is a matter of comprimise.
I know farmers who would not live where they live if they were not farming
But they would not farm anywhere else.
Good year to have a store lamb auction[as was last year].
Andrew and Janettes comments are spot on from where I am sitting. There are significant numbers of farmers for the last 4 years trying to make their cows milk on dirt, and with this vast (?) amount of milk, paying down the interest and principle on multi million dollar loans. It will just not be adding up any more. 7 bux a kilo of milk solids is a great payout, but you have to get milk into the vat and it aint happening. Down my road, cows have been moved off property, all are on once a day, some are drying cows off, no supplements have been made, summer crops are hopeless and its DECEMBER. So it has rained, big deal, a lot of the pasture is dead. Zippo will happen. This is a crisis, it started with the debt, add in banking basel stuff, and 4 years of drought, and boom, years and years of work up in smoke. Long time farmers are being driven out of business, this is very bad for nz incorporated.
Belle
look at the debt problems in Europe, a major market for us. Scares me, this debt is never going to be paid back, its default time, and if we are not careful depression.
The banking personnel topic is very interesting. I have noticed I have lost my friendly banker, gained a more distant banker, who suddenly wants my lifes story and a cashflow that predicts my future till retirement.
I believe there are many farmers out there sitting in limbo land, they know they are broken financially, but because they can not sell, they just plod on. Watching this drought unfold, and the response to it, has been disturbing. Total denial from everybody that it was going to happen again and earlier, refusal to do anything proactive, then grudgingly taking babysteps, then just giving in, and saying 'whatever' like a bunch of reluctant teenagers. Like who cares anyway, we're stuffed, what does it matter anymore... Its an attitude that I havent seen before, no fight left.
Hi Andrew, its really scary, I just keep hoping our meat and milk continue to be stable for a bit longer. Keep trying to get my debt down and encourage my family and friends to do the same. Most of them have no idea how bad things are overseas. They would never read the business pages of the paper, or listen to business programs on radio or tv. The ignorance of the general public is gobsmacking.
Belle
I was out last night at a local party, some of the farmers were really drunk, lots of pressure from the banks,unusual night. Wife drove home and left me there, I on occasion have left her in town so I think we are even now. One farmer told me he has to drive 6 hours to AKL to talk to his new rural lending agent, its tough all right I know of other BNZ clients getting the same treatment. I think the banks are being unreasonable as the drought should be over hopefully for many years. I think we are witnessing the influence of Aussie control of the farm loan book. We have had a heap of rain, so thats one pressure gone but we were still a bit green sounds like you guys have really got dry, lots of complications can arise from rain this time of year, Im hoping for an easy season for a change. On the drive last night I was amazed at the number of farms with very low stock numbers, I think it will take a couple of years to fix that problem.
Question please:
Lots of people are under pressure from their bank because of debts.
Not many of those people were forced at gun point to take on that debt.
And the pressures often arose as a result of factors largely beyond the control of the borrower.
So should some borrowers, or certain sectors, not have to face the same pressures and consequences as other debtors?
This I ask because it seems a few are complaining more and louder than others even though they borrowed heavily on the assumption that the debt would eventually lead to personal gain for themselves.
If you borrow a lot of money to, say, grow your business do you feel that you should not have to suffer as much as those who borrowed to buy houses or for some other reason?
Or is a debt just a debt, and must be repaid at the agreed time and/or at the agreed rate? Do some believe they are for some reason entitled to have their own debt perpetually rolled over or even wiped, or be treated more leniently?
Is there some law against talking about farming problems? If you guys want to read into it that we are demanding other farmers be bailed out of their misery then thats your imagination. However the powers that be do need to understand that export receipts arent going to be what they expect.
Magnum, a mortgagor would have borrowed with the understanding that the nature and manner of the servicing at the time the mortgage was accepted, would be honoured by the mortgagee. In other words, as farmers, when the banker sold the product and marketed it with the flexibility that the product would support negative cashflow during times of adverse climate or a drop in commodities for eg. So, when the mortgagee changed this marketing campeign virtually over night, we have a problem.
"they did approve losses yes, but there was no agreement to fund losses forever"
"yes capital was scarce worldwide & yes it was tight 4 banks"
Horses mouth 18/12/10
When the banks capital became short (short/insolvant shhh) in 08, they froze. Consequently nose diving land, housing and building prices.
Magnum, I see what youre getting at for sure. All self employed people have volatility around our income. Employees have set income. This is what has to be taken into account when a mortgage is granted to the self employed. We cant pin point in advance our income. If there is drought, we may earn less than expected, but in a favourable season we may produce say %120 more than anticipated. Land didnt generally depreciate for decades therefore banks had preference to lend to farmers with greater flexibility. They cannot produce products that are black and white as our income and expenses are not black and white. To lend the same way as someone with a set income would be detrimental to the farm's economy, therefore the ability to repay.
From a banks perspective yes Magnum, but as with housing and buildings, the banks are driving the values down shortly after they inflated them into a bubble. They are determining the price of land when a borrower makes a mortgage application. This is a global issue and one which borrowers and governments are desperately trying to rectify.
Magnum PI,
"Not many of those people were forced at gun point to take on that debt."
True, but the analogy is simplistic and not that relevant.
Farmers were encouraged - even pressured by lenders - to take on additional debt, but government strategy also encouraged increasing levels of debt. Allowing the formation of Fonterra and increasing our inflation targets was part of that. The past Minister of Agriculture even toured the country promoting further investment in dairy expansion.
Where was independent analysis suggesting inflating farm asset values may have been a bubble? Almost non existent. Any one of our major agricultural institutions could have put the brakes on the expanding farm price bubble but didn't.
DiaryNZ (think Fonterra), Agresearch, MAF, Treasury and NZ agribusiness academics all maintained that there was no bubble in farm asset values and farmers should and could safely be - and would do the country a favour by, taking on more debt.
Any who disagreed or produced analysis that contradicted that consensus were marginalised and didn't get research contracts or employment.
Many farmers were naive borrowers and will pay the price for that, but there are many others also culpable but not yet held to account, and still enjoying their good or even excellent salaries within government or research institutions.
"Farmers were encouraged - even pressured by lenders - to take on additional debt....."
And everyone else wasn't? Once you've decided to take on debt you must be held accountable for that decision, whether you were "encouraged", "pressured" or otherwise to take on that debt. Everyone else has to live by those rules.
I agree with you lucky basket, once you agree to take on debt or make any decision for that matter you are responsible for the consequences, good or bad. However I think where Janette Walker is coming from is when farmers who took on debt often with the encouragement of their bank whom have had the rules changed on them after the event.
Colin, out of the office of Mr English last week. "The government has put systems in place to protect the unsuspecting borrower" If only they had acted on the research of those who analysed with calculated accuracy as opposed to those who analysed with calculated marketing strategies. Perhaps Allied Farmers were involved. Are they in receivership yet?
I suspect anything done will only be tinkering - I doubt Bill is about to go after militant ignorance thoughout his main ministries.
I am not even sure he knows what militant ignorance is, though he did early in this term indicate a desire for an alternative source of advice to that coming from Treasury. A good idea at the time, but of course nothing changed.
Its march in december. Gona create all sorts of problems. Grass grows grass. No grass, rain, still no grass....hot days back, no supplements to go with the pk, and oooh its gona be ugly. Hoping like hell the rain sticks around. For a couple of months!
People havent been saying a lot, but the little that does come out is quite major. They actually say they will be buggrd. Then quickly change the topic. Last conversation I had with my grazing dairy heifers owner, his voice was low, he spoke very quietly, and he said he was just doing what he could... it was damn distressing to hear him like that.
Belle,
Your comments seem very realistic. If I could just mention that I saw for myself, steel framework for cattle shelters laying on the ground at a Crafar property in 09. Many months prior to this, a bank had removed their O/D facilities without notice and another bank removed their discretionary ability to both repay accounts and make purchases. Its a shame the sheds couldnt be completed.
I'm looking to buy, looking at a sheep and beef property. I looked at one forced sale. The property puchased for $2.4m in 2007 (I think)
GV $2m
1 offer for $1m from a neighbour, the bank that was selling turned them down.
The "owners" of the farm have no equity left but the bank won't let them move on.
I think the property can return a 3% ROC at $800k. I will wait until the banks are sick of waiting. Plenty more to come to the market yet and those cockies just keep getting older.
These cockies are getting older but where there is dairying,they are starting to buy runoffs again,and more conversions are on the go.
I know of a block,flat to rolling with a stuffed house, where $10,000 per acre was turned down in 2008,it went up for tender mid 2009 and the top bid from 5 tenders was $4000 per acre,and it sold mid 2010 for $5800 per acre.
We are witnessing a banking crisis in Rural NZ. The banks are going to lose a lot of money and they are culpable.
http://www.washingtonpost.com/wp-dyn/content/article/2010/12/17/AR2010121705775.html
Behind that shift is a growing recognition that the obligations of a country's major banks have become, in effect, obligations of the country itself - particularly in Europe, where nations commonly have banking systems in which a few, internationally connected companies have liabilities far exceeding their host nation's economy.
Increasingly, when analysts look at the health of European countries, they look not just at how much a government owes, how much it spends, and its sources of revenue. They also incorporate the full scope of what its banks owe at home and abroad. The debts of a country and the debts of its banks "have become synonyms," analysts for Barclays Capital wrote in a November report.Red Dog, what do the figures look like on an equity partnership given current farm prices. Would it be better than money in the bank?
AndrewJ, I might head to Chile this autumn. My wifes from Cauquenes in the southern Maule region. Nzs that I've spoken too stress the need to have Chilean 'partners' involved in any investment in farming their. They also lament the untrustworthiness of employees and anyone they need too rely on. They think that they are going to change the ways of 400 years of culture, and get the land cracking their. Whats your opinion?
You need to get the right mix of farm,gearing,investors and farm management.
If you can get these together,I think it is a good time to go for it.
Sheep farmers have become increasingly involved due to the frustration at not being able to compete with dairying in land acquisition.
I have friends you need to talk to. I think at present its a bit tricky, the currency is very strong. I know some chileans who have been involved with KIwis in joint ventures which have been successful. I need to look at a map to see where you wife is from I think north of Concepcion?We have family in Santiago and I've a friend in Chiloe. I should be at a wedding in early Jan in Valdivia. I've several European friends with farming interests doing very well. For what its worth I think Id avoid equity partnerships in dairy like the plaque, I have friends who are involved if you wish to talk to them. One of my main concerns is getting your capital out if your circumstances change. I could be wrong but I see a lot of these ventures as being set up to benefit those in charge. I have a friend who can give you access to returns in dairying. Personally I think,I'd sit on cash at present. You can get my email off Bernard if you wish.
Red dog what do you do for a job? I did a survey feb this year. collated by Massey Masters student under supervision of Claire Mathews Banking and Economic Academic unit. One of the questions asked was: Have you had your overdraft reduced or removed 44.6% had od reduced 3.3% had od removed.
Another question has the management of your banking business been altered? 35.3% responded that they had been shifted to central control, 4.1% were a mixture of both central and local. 60.7% retain their local branch.
67.5% responded that they didn't trust their bank to support them through financially difficult times. And before you say that the farmers that responded were all whingers, 36.3% felt they had a good relationship with their bank.
Steve, Banks are declining ridiculous offers because they know that if farms are sold at those values, yes the so called bottom 10% exit farming then another group step in to be the next lot with debt equity ratios and so it goes on,
Question for you steve. If you are successful as a bottom feeder and say in ten years time the farm you purchased for bugger all has gone up in value I take it you wouldn't accept the greater value when you become an old cockie. News flash sonny you're getting older too.
Had a guy from Auckland Uni ring me on Friday about a survey.
I had binned the first two so he was going to send me a third.
Persistent Devil.
I told him I worked 65 hours a week .
Don't know why he was so desperate.
Perhaps no-one was replying.
Statistics NZ never chase you up.
I don't mind doing phone surveys.
VC, No the survey wasn't discreditated and in case you didn't read what was written before I will repeat for your benefit 36.3% had a good relationship with their bank.The results have been taken seiously and if you listened to National radio a couple of weeks ago, A member of the Rural Professional Group agreed that the figures from the survey were reflective of their experiences with their rural clients.
Question, the Deloittes survey that is going to be used to plan meat industry strategy next year, Are you going to discredit that because only pissed of farmers are going to respond to it?
The survey regading a potential merger between SFF and Alliance received a 90% approval. That was from 5% of farmers though who felt the most strongly. You can make the numbers suit any agenda.
Both National Radio and the Farming Show have featured people discrediting that survey as bank bashing, and anecdotally i am yet to meet a farmer aware of it that did take it seriously.
The Deloittes survey is being conducted by a professional outfit, using credible survey methods. Not a classified in the local rag seeking aggrieved complainants.
Vc, get over it. The farming Show is sponsored by the National Bank and they not going to bite the hand that feeds them, Considering I have been on the National Radio I do have a pretty good understanding of what was said.
It was hardly a classified seeking aggreived complaints and you can criticise the methodology all you like. Once again 36.3% had a good relationship with their bank.
One of the reasons farmers didn't respond as much was the overiding fear that their bank would find out.
I did the survey because I had a gutsful of hearing about suicide by bank, and for alot of the farmers that wrote letters about themselves to me it was the first time they had talked about there situation to anyone and some of them I am still in contact with and I know that the "inadequate survey" prevented a murder suicide. So time well spent.
question:
Basel III wants banks to hold enough assets that can be converted into cash to meet their needs for 30 days in a " severe liquidity stress scenario" (Weekend Herald Dec 16th). Does anyone how many assets NZ Banks have to cash up? And whether NZ Banks are able to meet these new requirements? (article Swan warns banks on new asset rules)
Janette, I dont have a technical or clinical answer, Im at grass routes, but at this stage its looking like a big percentage of farms and/or lots of mortgages in every sector traded for bonds. What happens to the mortgages when they are exchanged? Who will buy them if they are on sold???
Drooler;
I only comment on farming and bank behaviour because that is what I am , a farmer. Farmers need seasonal finance because what we do is seasonal, mating cycles etc, Lambs need time to grow,time to get weaned and onsold. Sheep and beef farmers tend to get their income seasonally, therefore seasonal finace is needed to carry on with farm expenses in between income coming in. HAving od's limited or removed makes it very difficult to manage the farming business. As a result of having seasonal finance curtailed many of the stock and station businesses had to carry the cost. Farmlands, RDI to the point that these companies had to put credit limits in place though RDI did allow 3 months credit with no interest as they recognized that Dairy farmers have daily use of chemicals etc that are mandatory to maintain food safety.
I guess the urban community don't rely on od facilities the same as farmers. As ar result of Bank practices in 07-08 some banks were exposed too heavily in the rural sector and as a result of Basel II regs had to rationalise their lending books to meet the demands of Reserve Bank requirements and that process is still on going. Sheep and beef breeding blocks are unable to cash flow as well as the dairy sector, or those farms with the ability to fatten stock therefore an overdraft facilty is crucial for those that have seasonal income.
Im with Rabo and I must say ive had no worries with them. Hardly heard from them in months despite having a not inconsiderable mortgage. I work on a no surprises policy with them meaning im completely upfront no matter what. My manager told me recently they are currently writing 50%of the rural business in comparison to their 15% overall market share.
Belle,Aj and Janette. I understand where you are all coming from but I think as an industry our prospects are the healthiest in ages and the returns are starting to arrive at the farm gate. The example I gave earlier of getting $115 for my cull ewes up from $51 last year is material testiment to that. I fear the defeatist mindset prevalent within our industry only serves to undermine its potential anddrive young and enthusiastic people away.
Rabo have been good since they got rid of the Wrightson connection and some of the needed to be retired staff who had got too cynical.
They don't seem to get as stressed as the Aussie Banks .
Clearly much less constrained.
Pinched lots of staff from National.
Driving up drives at present looking for business.
I'm seeing them take quite a lot off National.
I would say they and Westpac would have been doing most of the new farm lending this year.
Cull ewes selling for $115 and 19kg lambs @ $6 = $114.
Prices for stores up to $80.
It will be like the year Fortex went broke when there was a procurement war.
Good for sheep farmers.
Long live the $115 lamb. How sustainable is this do you think Red Dog? I hear a few ag economists predicting that it has peaked, without some form of exchange rate relief. Amy higher price and buyers will return to lower priced proteins, your pork and poultry,
China still growing their imported sheep meat consumption however still not at the quantity/price point to reduce our dependence on Europe.
The banking business thing i think is area specific. I know down in Canterbury that NBNZ are still dominating, particularly in Mid Canterbury where the growth continues, and growing their book considerably. I hear they remain the tops when it comes to EP's and farm succession.
Westpac weak outside of southland. BNZ have been strong in top of south but gone to ground now they are getting hammered by the wine industry. I would question if Rabo are going away from their conservative dutch roots, and have perhaps over corrected, i can see a landlside of bad deals coming to the market again in 3 - 5 years, a result of poor lending and no contact with their clients. Not sure if ASB still do rural lending. Were'nt they running around 18 months ago denying the recession was happening?
Wonder what influence the heartland bank might have?
SS young people are being driven away because they can't get into the industry. Sheep and Beef lending has almost come to a standstill. Banks require 80% plus equity for land and are only lending $ 100 a stock unit. A lot of the dads of these young guys think that sending your offspring into farming is child abuse, and the reality is that buying a hill country breeding block, store farm the returns aren't there.You have to have finishing country or be in partnership with someone else to finish stock.
We're fortunate enough to have no debt at present and so no banking aliegances beyond our over draft requirements, but i would be very wary of any bank where growth is their focus at the moment over getting the basics right for their existing clients. e.g governance, appropriate debt/equity ratios, relevant budgeting, succession planning. Our friends switched to Rabo 2 years ago on the back of big promises. The haven't heard from their agribusiness manager since until 3 months ago when they needed an OD extension and were told no and that they wanted to infact reduce it once they start getting paid for their lambs this summer.
Red Dog your comments are misleading. Firstly I'm sure i have read articles in the media reporting on NBNZ renewing the patent to the Black Horse for many more years, at a considerable cost. Surely not something that would be done if the black horse was to go next year as you speculate.
Your comments on Rabo and Westpac are interesting. In our area they are seem at the moment as the ones prepared to fight over the scraps, doing deals that would make Allan Hubbard uncomfortable. Concern amongst the community is that a lot of farmers are getting access to capital that they really shouldn't have. In nature animals use red and orange markings as a sign of danger or warning, same can be said for bank managers
Point me to where you read the Black Horse comments.I distinctly historically remember that it was only going to be there for 8 years,which is 2011.So you must be talking about a very recent development.The head ANZ guy was recently talking about branding matters in 2011 so what in fact was he talking about that for if the Black Horse is to stay.
I don't see any banks fighting over scraps at present.they are all a little more guarded than they were.I see Rabo picking up quality lending,with a strong focus on dairy.Westpac have already got a decent size presence in dairy,but Rabo with the Wrightson book have worked more from a sheep & beef base.
http://www.stuff.co.nz/business/3498028/National-Bank-to-keep-its-horse-logo .
I only remember because a friend;s wife works there in business banking and was saying about how much they paid to keep it and that as long as Lloyds were happy it would continue in perpetuity.
The Rabo thing is just personal experience from our district. They have recruited a lot of former stock agents, real estate agents, fonterra reps as bankers who have the people skills but not the core banking skills it would seem. They seem to be going well away from the sheep and beef thing probably losing as much there as they are picking up in Dairy.
Yes I was correct.The Black Horse was due to expire next year.
Clearly this article must only have been published in selected newspapers.
The dreadful ANZ non agribusiness bank realise how much more they would lose off their ship should the Black Horse go.
ANZ and BNZ would be the two worst banks I have historically dealt with,for red tape.
Dominion Post, Christchurch Press, Southland Times, Sunday Star Times, and Waikato Times ran the story to mention a few who still have links to it.So not really selected news papers so much as anything Fairfax.
Are you suggesting that a large number of the 40% of NZ farmers that bank with National Bank/ANZ are doing so because of a logo, and would walk if they didn't see that atop their statement each month? I think farmers are a bit smarter than that.
Interesting that you are apposed to both reckles lending and red tape. What kind of environment would you like to operate in?
Sheep Shagger, I would say land prices way ahead of productive values and succession geared to foriegn ownership and corporate farming is driving young people away. Would you want your children getting up at 3am and working 12+ hours for bugger all pay, with no real hope of meaningful advancement?
Omnologo. You have just reinforced my point. Its attitudes like yours that put off young people from aspiring to be farmers. Ive never started at 3am and employ a young fella who starts at 7.30 is required to work 8 to 10hr days with the odd bigger day come weaning,shearing etc and a half day on saturday.Hardly slave driving! Hes dead keen enjoys his work and will one day make a good manager. He may or may not go on to own his own farm but regardless will have many opportunities to choose from. Agriculture needs young people like him and gross generalisations like yours donnot encourage them.
Bollocks Malarkey. In my own case its the first time ever ive had an employee and even then I job share him with a nieghbour. It might be true of the dairy industry that alot of the farm owners donot put the cups on any more but thats beside the point. Surely thats a good thing that employment is being created.
You had to have million dollars of debt to get into Primary bank of Australia. Made for interesting Rabo meetings, these are the new clients from PIBA, Ok, thats interesting, they have a big boat, house at the lake and loads of debt. I was also surprised how many farmers were with them. The problem is that to break into anew market you end up having to compete with existing institutions who would rather you pissed off. So you end up with lower criteria to attract clients or lower interest rates. Thats why Im watching Wrightson Finance,anyone paying those interest rates must have been the equivalent of banking lepers, with the pox to boot.
Your friend may have been bragging Aj. We were PIBA clients in 1987 and we had nothing like a million dollars in debt - nowhere near even 500K. However to be fair to your friend after Rabo took them over there was a time when they went after the larger mortgages. Our then manager told us it was because it was more efficient to for them to have one $1m loan than to have to worry about 10 100k loans.
Wrightson Finance have only the desperate on their finance book.
I recall talking to a westpac manager who was offered a job at Wrightsons.
What is the point,he said.All they have is a book of stock and plant loans.
Three decent dairy loans at Westpac would equate to the total loan book at the jpb I was offered.
Yes - NZfarmers listen to bankers go bigger, make yourself rich - sail into independence – until “Climate change” hits you (again) and New Zealand needs more money and becomes China.
China has a policy to increase agriculture production all over the world and forces prices down to feed their population. New Zealand will not be able to compete.
Small countries need to think small, but with bigger ideas – a long term “100%NZpure Economy” adapting to an ever changing situation - the world’s only future.
All farmers should move stock to high ground, and if people don't need to travel they should stay at home.
Full article: http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=10701491
Interesting to read some articles about "Climate Change" here and other rural topics.
Walter farmers always have to live with weather events. NZfarmers wake up - before it is too late. The world is changing - fast.
Im with Rabo and yes they were the 'interest only bank' I think when times get tough Id want to be with any bank but Rabo, and thats just from experience with friends who got on the 'wrong side' with them. ( it took a long time for the Dutch to forget the Tulip bubble)
The problems we face are caused by inflation and having no capital gains tax. It has distorted the farm sector and returns are not sufficient to justify the prices. It has also distorted our economy in general. There are still those who are trying to temp investors into the sector but I suspect the returns will be dismal. You are at the wrong part of the cycle, its too late. Even if prices are back %30. Look at what good old Helen did for Fonterra, how far do you go? Happy to change values and risk Kiwi lives.
http://www.stuff.co.nz/national/politics/4475134/Clark-bowed-to-sending…
Its hopeless living in a country where the profits are all in tax free capital gain and its almost impossible to run a business because of regulation and high cost structures. You end up with an economy where workers are on the benefit or work for the government and all the money is with those who have assets and speculate with property. It also encourages high debts against unproductive assets which in a crisis are unable to be liquidated and earn no income. Its compounded if you borrow off shore as we have done.
Lets see what happens to the nearly 200 billion of off shore debt if our doller collapses.
Correct.NZ is a bizarre country having no inheritance taxes,death duties,land tax,stamp duty,CGT and now no gift duties.It also has an increasingly unstaffed iRD,which means if you speculate in property you have to walk around wearing a big sign,to actually get caught.
Expansion in farming has been all about capital gain,not income.There have been tax free fortunes made out of it.Does nothing for the farmer who wishes to maximise net trading surpluses.
The governments we have had,encourage investing in land and buildings.
They give bad signals.
As for investing in dairy syndicates,it has been all about tax free capital gain.
And when I talk of this sector,I am not suggesting that you invest in syndicates run by professionals who set them up to clip the ticket.
Greetings Red Dog.
Re Rabo and PIBA; I'm not talking fixed interest, from my scant knowledge there's nothing special about that. What changed NZ ag for the worse was not having to pay interest on loans, and from what I have been told, it was Rabo that introduced that to NZ, and the other banks followed suit naturally. By not having to pay interest, farmers (or farm owners) in their wisdom payed too much for land, fuelling speculative capital gain based on nothing.
No it wasn't Rabo who introduced it to NZ.It was PIBA.
What kicked the latest property boom off in NZ was the collapse of the NZ dollar in late 2000,the lowest interest rates for 40 years,and banks using sales techniques to grow their books.inflation...Too much money chasing too few goods...and a bidding war...white board auctions where you had frenzied bidding and then unsucessful bidders wanting to buy from a successful bidder,post auction.
Wrightsons have zilch share of the rural lending market.
I didn't say that there were not distressed farmers out there.
I know of situations in sheep and beef where farmers have continual cash deficits.
There is only one answer in the end and that is an exit from farming.
I know of situations in dairy syndicates where the last ten years have seen one of cash surpluses.
Look at all that lovely money moving in across the Tasman...must be inches of the stuff...the banks will make a killing....just as well they guided the rural economy into deep debt..otherwise the returns would be staying in NZ to reinforce the rural balance sheets making them not just Lazy but seriously devoid of debt......a bankers nightmare.
They own the night moo.....don't venture out at night...might pay to stay clear of them during the day as well....teach the kids of the danger...forget about help coming from govt...if the rural sector can start to organise and emphasise the importance of avoiding debt at all cost......!
There are a number of contradictions within these comments. Probably because of the diverse nature of the farms being quoted. There are some farms whose debt levels are now intergenerational due to their earning capacity compared to their interest, capital (+tax liability) and FWE payments.
Others may be debt free and in a position to buy more land at above it's current productive value - because they can.
What should be increasingly obvious from janette and Andrewj's comments is that NZ is no longer an environment where well planned and implemented business plans are encouraged through a transparent system. Instead an increasingly powerful parasitic system siphons productive returns into "expensive paperweights" rather than into more profitable investments. The gap between costs and income has seen many sheep and beef properties unable to keep up full maintenance shedules. The same prospects now face dairy.
Perhaps Andrewj is correct about shifting resources from NZ elsewhere while the $NZ still means something.
Red dog, thanks for adding some balance to all this. I would pull you up on one point though insofar as the comparison with the fortex procurement situation back in the 90s. Whilst there is intense competition for stock the meat works are currently paying out 2% less as a proportion of the UK in market lamb price than they were last season. The facts are that there has simply been a huge spike in prices. Irish lamb farmgate price has just broken $5euro per kg or about NZ$9 compared to our $5.60 this week, beef prices in South America are circa NZ$5.50 compared to our $3.70kg. Whilst I think we must be careful not to repeat venisons mistakes of recent times I believe that while the oil price, hence grain price, hence meat and milk price will stay at these elevated levels.
From My local Rel estate agent
It's less than a week to Christmas and it's time to reflect on the year past, feel excited about the Festive Season and start to plan our new year.
2010 has been a challenging year for many, including myself. However, despite the challenges it is often through adversity that we find our inner strength. Whatever the year has delivered you, may you find a positive in it.
On the 1st January 2011, a brand new year starts - a clean slate - a year where everything and anything is possible!
I look forward to being of service to you in the future.
Kind regards
Your friendly out of work rural real estate agent
I am staggered at the rumour and inuendo and interpretation of the Banks actions that you guys (and gals) have detailed in the hundreds of posts above. Let's understand the keys points:
1. Basel III requires adequate capital to be aside for the term of the loan. This is why you will now see all rural lenders limit the term of the loan to 5 years at best.
2. Because of these capital requirements, you will see non utilised OD's reduced as the only way to get a ROC is to be using the overdrafts. Expect the cost of seasonal finance to increse by about 1.5% on average as well.
3. This capital that is risk rated hence weaker businesses in terms of liquidity and security will pay more for their funding - at the moment about a 2% spread between the good and the bad. The reality, if it was a user pays system, would see that spread out to about 5%. This should be the real kick in the groin for most farmers who were offered pre GFC finance at about 100bps over bill and are now paying >4.00% over bill where those good farms can negotitaite about 2.25% over bill.
4. Given that the capital adequecy is set through a combination of both Basel III and the reserve Bank, you have now seen a regulatory regime be bput inplace that is akin to a rort. Same capital requirements, same return on capital required for all shareholders = 1 big loser being the borrower.
Ultimately the Banks will win as THEY ARE ALL THE SAME. I should know - I was one of those middle managers who got out because of the narcissistic tendancies of senior managers who negotiated to keep their jobs by promising they will deliver the ROE required by Melbourne/Amsterdam.
Am happy to impart my klnowledge to anyone who wants to understand the truths behind the Brand.
AJ, one mans equity lending is another ones long term assessment of dairying payout being well in excess of $6! The reality is, the banks lent the money out on the expectation that in the event things didn't come to work out that well then there would still be a liquid market in which to retrench at ellevated values. Hindsight's a bitch. I personally had an incling that something was amiss very early on in the piece and probably recognised the scale of the problem in about August 2007 when the first Credit Suisse fund froze. The next 12 months was as desperate as anything i have known with management making knee jerk decisions all over the place in an attempt to retain their own employment.
I still laugh at some of the parameters that people established businesses with interest servicing costs in excess of $2.50/kgms...
ITYS, I understand that when Basel II came out and the reserve bank bought in some new regs for banks to comply with for further accreditation, Thet the average length of a rural loan was 12 months and the reserve bank wanted the length to be pushed out to 3.5 years
It is interesting what you say about od's. Banks are denying that they are reducing od facilities and the tack they have been taking recently, in the past 3 weeks is that they look at the peak use of the od and then suggest to the farmer that the od needs to be reduced to that peak level. Which is well and good but it doesn't allow the farmer to have a buffer in case of drought, storm etc.
I spoke to a farmer today that was given 24 hrs notice that his od facility would be removed and the receivers moved in the next day.
I asked the question before,are nz banks able to meet Basel III requirements that enough assets can be converted to cash to meet their needs for thirty days in the event of "severe liquidity stress scenario" And if they haven't the ability what do they need to do to meet those requirements.
What do you think of the article published by Hickey about "Covered Bonds are risky"? a few days ago. I personally think it is an accident waiting to happen
Explain the rort
WJ, your first sentence has got assets and liabilities mixed up - the reserve bank wanted the Banks to increase their average length of liabilities (deposits/funding) to ensure that there would be buffers in the event of another ceasure in international wholesale funding. A prudent move to some degree. They also want Banks to hold more capital as well - more capital held (and unusable) the higher the interest rates to give the 'appropriate return'. As for the covered bonds scenario, I don't really have knowledge of banking at that higher level so will leave comment to the experts.
My experience of the OD situation is two-fold in that Banks will be more than happy to give available credit but it will cost in due course (think line fees). Ultimately all bank facilities are on demand and if the receivers are being called in then putting the account into default may be one method of bringing an account to a head (but one that Bank's invariably hate taking due to the reputational risk). I think for the extreme situations where farmers may need OD to deal with drought/flooding etc, then it is down to trust that your Bank will see you through the period - almost on the proviso that you do what they say and when if one's balance sheet is a tad stretched.
Hopefully that clears a bit of your questioning up. On another note - we need to be careful that we distinguish the treatment of 'critical' cases and 'regular' cases involving availability of credit etc. They are 2 seperate kettles of fish...
"Question for you steve. If you are successful as a bottom feeder and say in ten years time the farm you purchased for bugger all has gone up in value I take it you wouldn't accept the greater value when you become an old cockie. News flash sonny you're getting older too."
What a lot of flubbawabba, I am not a "bottom feeder" I just don't want to spend my life working for the bank (again). I would rather grow old with no farm and no debt than debt and a farm. Oh and the "land prices" will be up in ten years doesn't wash with me thanks, but good luck with that, I'm sure your bank manager will believe you, and extend your od......
Its frightening to think, we have 40 odd billion of farm debt and look at the trouble its causing.
Its going to be nothing like what going to go down when have this discussion about housing. Housing debt dwarfs farm debt, I talked to a friend with a shop today, she said," you wouldn't even know it was christmas".
A lot of our housing debt is off shore and I need Iain parker to confirm the size of it, I think over 200 billion, thats when the party really begins.
When housing goes so do our banks.
When the price paid for farm land increases 550 % in 20 years,what else can you expect.
A piece of land was signed up in 2008 at $13,000 an acre for dairying.
In 1996 that land as a sheep farm sold for $1200 an acre.
So what else can you expect but increased debt to finance the increased capital cost.
And the banks were running around with wheelbarrows of it.
People still have to live somewhere.
House sales are ticking over OK as long as vendors are realistic.
Top of the market stuff is slow,but what else do you expect if you screw your head on properly.
who needs a house with an ensuite and a bathroom for each bedroom.
Yuppie stuff.
Yesterday's luxuries are today's necessities.
Yuppie phones.
After all,a house is just somewhere to live,just as a car just gets you to from A to B.
Anywhere from Autumn 2009 onwards was a good time to be buying houses.
My wife and a couple of friends are doing up an elcheapo we bought.
The friends know how to do it.
Been to the $10,000 property seminars plus know where to get all the good deals.
I'm looking around at present.
A few distressed sellers out there.
Banks are keen on lending again.
Talked to someone this week who has signed up for a brand new house at 22 % below the initial list price.
Real bad time to be trying to sell spec houses.
Looked up this guy's landholdings on QV and I can see he will be real stretched.
Know a couple of builders sitting on specs who are sweating.
And they claimed 12.5 % gst on inputs but have to pay 15 % on output.
ITYS,
1. Do the banks fear litigation from those farmers unfairly treated at all?
2. In your opinion, thinking at a senior level, did banks understand they were driving the monetary value of land up 2005-2008 and around May-Sep 2008 when they virtually shut down, was it strategic to drop the values that quickly?
3. Again in your opinion, is it a practice that banks sell up farms so as to rid them off the branch's books if the lending by the guys on the ground was reckless and outside of bank policy? My bankers pulled my account back from intensive care very quickly. They didnt seem to want Head Office to have too much info divulged.
moo,
1. Every business fears litigation - reputational risk is everything. However, in terms of law, you would be hard pressed to get a successful case for being treated unfairly. There is some case law that suggests that if a Bank has knowingly lent into a loss making situation then the bank has little claw back on that money. This is usually mitigated by the Bank advising the customer, in writing, that the borrowing was made against the equity in the business. Ultimately, the terms and conditions of the mortgage documents leave little 'wiggle' room. I definitely feel that some rural customers who have been given derivative products such as CARLs/Swaps/Caps n Options may have a case to get compensastion due to them being sold to 'unsophisticated investors'...
2. In short, yes and no. They understood that land values were appreciating but this was nothing different to what happened in the 70's and periods of the 90's. Some expectations of payout suggested that 6 yo 8% return was still acheivable at $13k plus and acre. When the credit froze and noone knew if their keys were going to work on Monday morning, they were then suddenly aware of the potential fall in land values and to the provisions impinging on their profits - hence you've seen a more softly softly approach viv a vis the 80's. (torture vs quick and painless death?)
3. If lending was done outside of policy at a branch level then you would not see the people concerned ever again. My guess would be that there were bigger cot cases than your own account to worry about and Branch would have been instructed by Head Office to manage the acount until such times as head office/debt management has the ability/resources to handle the file.
ITYS,
The public get a modicum of performance information about owner operated farms including from surveys by MAF and DairyNZ but the corporates largely remain a black box - only Landcorp reporting financial data that is easily accessable.
The general perception is that the larger corporate farms - especially dairy - are more heavily leveraged, poorer performing and generally more vulnerable than owner operated farms. Do bank lenders similarly perceive corporate farms, and does the sheer scale of their debt dictate that corporate farm debt be managed very differently from owner operators? Here I am suggesting including controlling industry confidence and media impact.
The reality, Colin, is that we didn't tend to worry about the nature of the business at the end of the day. We of course like to think that we bank people not budgets but in the sales driven atmosphere of the mid 2000's to 2008, we viewed all farms the same - what are the land and buildings worth, stock numbers, number of shares, what entity are they trading in, what guarantees do we need to tie in the income to the debt etc etc. The reality is that debt is indiscriminitary whether it's the 200 cow owner operator in the 'Naki or the 5000 cow multi shed operation. There is no general pattern that comes through at all.
That last statement does come with the usual caveat in that if you owe the bank $1m it is your problem, if you owe the bank $20m it's the Bank's problem.
Remember that about 20% of all rural lending (by $) is impaired to some degree - about $9bn.
That is good news sheep shagger.
Lambs were selling for $75 in 2001 so we need $115.
Good to see wool up $1.50 this season.but when we have the local council stock firm and farmers oufitting buildings in synthetic carpet,it is not a good sign.
With farm working expenses increasing by 60 % over 10 years,it is not hard to see why sheep & beef farm sucession is a rarity.
ITYS in an article in Reserve bank Bulletin, the reserve bank identified some farm lending issues one of them being contractual maturity of a loan.
a loan with contractual maturity of 5 years is considered 60% more risky than a loan with a one year maturity and the reserve bank felt that this created an incentive for banks to rewrite contracts to reduce regulatory capital.
In response the reserve bank required the 4IM banks to have a minimum average capital model maturity of 3.5 years on farm loans to reduce the incentive to rewrite contracts to reduce regulatory capital. In the boom lending frenzy 07/08 banks were doing massive loans interest only 12 months and a lot 90 day Cafs and alot of conversions were funded that way
I am not sure where Rabo fits in here as it isn't one of the 4IM banks, maybe that is why they are picking up clients from other banks. Be interesting to see what their loan maturity contracts are.
Times have changed there are many farmers that could do with a relaxed od to help them get through drought at the moment but it just isn't happening alot of farmers don't trust their bank to support them through difficult times.
WJ, when did this article come in because it would seem as if the reserve bank has cottoned onto the fact that the aim of the game was reducing regulatory capital held (less capital held, same income from interest rates = a higher return to shareholders)? I've even heard a senior bank executive say in private that if they could get rid of 4 and 5 year fixed options that would help them nicely in their quest to acheive the desired returns...
Don't be fooled by Rabo. They have a very clever marketing campaign and talk themselves up very well but the facts remain firm. They are writing off a lot of debt at the moment and are increasing margins very much in line with everyone else to pay for their provisions. They were the first to take dairy farms to receivership, first to also take kiwifruit orchards and vineyards to task as well. They made a punt in 2008 that this 'would all blow over' and wrote a lot of business that the other banks wouldn't which is now biting them. Badly. Plus they are driving foreign ownership of land to recover their poorly lent money in most receivership cases.
As for the OD, you may be right about trust - the new breed of bank managers that are coming through are taught to think bank first, customer second.. Relationship management? Yeah right... Although do not castigate them for being young.. everyone needs to learn somewhere!
ITYS the article Reserve Bank Of New Zealand Bulletin VOL 72, No 3 Sept 2009 The whole article is interesting the pages 14-15 explain changes in farm lending.
For example There was no farm lending model so one was done using Dairy sector As the Dairy job was the largest debt sector in rural lending. Banks actually didn't have a lending model. What should have happened was seperate lending models for the different rural sectors. Banks all of a sudden required s&b farms to have monthly cash flows which made things tricky for seasonal income farm business.
Farm lending was taken out of small business and put into the standard corporate correlation. Corporate lending has a higher risk analysis because it is deemed not to be able to diversify in times of stress
The RB also didn't feel that bank models didn't take into account the risk associated with a sharp fall in land values and planned to introduce a minimum set of downturn LGD's (Loss given Defaults) The whole article is interesting
Don't you love it when you can say I Told You So !
I have recently extended my lending through purchase of a farm. Approached Rabo and existing bank BNZ. Rabo wanted a bit more security through a guarantee but BNZ happy with the deal as it stood so stayed with them.
It would be great if somebody could do some more investigation into the implications that Basel III will have on farm businesses - and how it might impact on our cost of funds.
.
ITYS
I enjoyed this article on UK banks,
I
Building the Great Pyramid: The Global Financial Crisis Explained
http://gregpytel.blogspot.com/2009/04/largest-heist-in-history.html
It was ancient history. It will be back within 3 years. Policy sits somewhere around 25 years p&i at the moment (but int only is acceptable if the SQ assessment meets the 25 year policy). There are moves afoot to get this up to 20 years minimum within a couple of years.
I found Rabo's Flexi loan a pretty scary thing. I had huge potential to borrow, with a limit way above what I needed. I see I still have 490k of unused credit facility, as Im 58k in credit they seem happy to leave me with the facility although as Im in credit, my file is not at the top, I haven't used it for three years.
I think 15 year loans are a great Idea, most of my friends never intended to pay down debt and were looking at gifting it to the children. Bubbles like this are so destructive to wealth.
ITYS, thanks for the insight, much appreciated.
What effect is interest only payments having on the robustness of farming in NZ, and our competetiveness with other primary producers eg in Chile where banks traditionally don't lend to farmers, (although recent investments by industry leaders involved with banks may change this policy).
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